Why Nigeria’s inflation will remain in double digits – Afrinvest

Due to potential new shocks from an increase in energy prices and currency devaluation, inflation will remain in the double-digit region in 2017, an investment bank and research advisory firm, Afrinvest West Africa Limited, has said.

According to its 2017 economic outlook, Afrinvest stated that the outlook on price levels with regard to increase in energy prices, including fuel and electricity, suggests that the inflation rate willremain on the high side.

The Group Managing Director, Afrinvest, Ike Chioke, made this declaration while addressing a press conference in Lagos.

According to its 65-page outlook titled ‘Reform or be Relegated’, Afrinvest noted that the CBN might be forced by possible developments in the currency market to devalue the naira from the current305/dollar to around 400/dollar.

“If you think about the monetary policy environment, we think that the CBN will be forced by the market to make a change. Currently, the naira is pegged at 305/dollar; we see it moving towards 400/dollar by the end of the year,” the investment bank said.

“If the CBN did take a plunge to make it really market-driven, we can see that even the 400/dollar rate may appreciate later on, bringing to something below 400/dollar.”

The research firm however reiterated the need to put in place economic reforms that would help the country overcome its economic challenges, noting that other commodity-exporting countries such as Russia, Brazil and Egypt have carried out major economic reforms towards stabilising their economy.

It noted that others have embarked on currency reforms, which have enabled them overcome the challenges that came with the fall in commodity prices.

“We note that the Nigerian economy, which is regarded as the largest in Africa as well as one of the most viable investment destinations, has been on a slippery slide downhill following the crash in commodity prices in the second half of 2014,” it stated.

“However, a number of other commodity exporting countries, affected by lower commodity prices, have since taken tough but necessary steps to boost their economies. The reluctance of Nigeria to impose appropriate policy reforms is perhaps most reflected in the currency market where a severe liquidity crunch has lingered after the CBN imposed capital control measures on FX transactions and fixed FX rate at N199.10/dollar in 2015 before moving the peg toN305.05/dollar in 2016.

“This was against the much-needed reform to adopt a flexible exchange rate policy allowing for appropriate pricing of the domestic currency which the CBN adamantly resisted.”

The report added that, “Foreign Direct Investment into Nigeria tumbled 63.2 per cent in 2016 to $2.1bn from $5.7bn in 2015 and $9.9bn in 2014 while Foreign Portfolio Investment into equities in 2016 slid 51.4 per cent (from N973.7bn to N473.5bn), weakening demand for domesticequities significantly. As such, the NSE ASI further depreciated 6.2 per cent in 2016 after plunging 16.9 per cent in 2015 and 16.1 per cent in 2014.”

While expressing optimism about the projections in the 2017 budget, Afrinvest urged the government to begin timely implementation of the budget to ensure quick economic recovery.

“The 2017 budget which is broadly optimistic given current macroeconomic realities, will require the focused commitment of both the executive and legislative arms of government in order to getpassed into law so that timely implementation can begin in order to achieve the objective of stimulating economic recovery through increased infrastructure spending.”